What is the right way to think about the different segment index levels?

Last Modified on 04/10/2019 1:20 pm EDT

Question: In a world where supply and demand were even in segment, would all index levels be 100? Said another way…. groups like Mid-Size Pick Up / Large SUV etc. where the index level was in the 70s for the late 90’s/early 2000’s and is now approaching 150-200. Is that all about lack of used supply in those various segments now…combined with consumer preference shifting towards those vehicles? Or have retention ratio’s structurally moved higher on better made vehicles? If the supply came more in balance with demand, should we expect that to normalize towards 100 index levels?

The answer is very much a combination of all the factors you listed. If, since the beginning of our index both supply and demand were equal, then yes, the series (without depreciation) would hover closer to 100. And yes, you’re correct in that the popularity of certain segments over time has helped keep prices stable and therefore you’ve seen upward movements in those particular indices given how an index measures relative prices over time.